Thursday, August 18, 2011

A new venture into fantasy-land

A financial newsletter recently made the following statement:

"For all the political bickering and scapegoating of China, 'Made in China' ranks only 2.7% of U.S. spending."

Where did this extraordinary statement come from?  Who is doing "political bickering and scapegoating of China"?  I haven't heard anyone "bickering and scapegoating" China.  All we hear in the media and in speeches by politicians and bureaucrats is the desirability of "trade" with China and closer ties with China.  

There is a legitimate special concern about China.  China has announced a policy of becoming self-sufficient in manufactured goods, including, to reach this goal, theft of technology from America and other western countries.  Once China can make all these goods for its own market, it will attempt to be the world supplier of the items also, potentially putting many American manufacturers out of business altogether.

"Scapegoating" occurs when inaccurate or unfair statements are made.  Statements made about the threat China poses to America do not constitute scapegoating. The statements are all too accurate and fair, and all too frightening!

Where does the 2.7% figure come from?

The 2.7% figure comes from an "Economic Letter" issued August 8, 2011, by Federal Reserve Bank of San Francisco.

The Letter starts out by saying that "The United States is running a record trade deficit with China".  But after making this statement, the Letter tries to show that we don't have to worry because "Made in China" goods represent only 2.7% of U.S. personal consumption spending.

The Letter is dishonest in a number of respects.  "Trade deficit" refers to manufactured goods.  Yet the Letter incorporates a large chunk of services, which of course don't come from China.  Through this dilution method, the impact of the imported goods is made to appear lower. The services referred to here include the service of having a rented or purchased place to live, the service of medical care, and the service of  recreation facilities. 

The Letter says that when we buy "Made in China" items we are also buying U.S. services such as transportation within the U.S., and wholesale and retail handling of the items.  But one truck driver can deliver many tons of manufactured goods.  A handful of people can operate a huge automated warehouse.  Retail sales staff are often few and far between in large self-serve stores.  By attaching exaggerated costs to these services, the impact of the imported goods is again made to appear lower.

The fantasy of the "Economic Letter" reminds me of an essay in Punch Magazine 40 years ago.  The essay is satire with a very serious and far-sighted message.  In Britain a man is negotiating to buy a new car.  He asks the salesman "Is this a British car?"  The salesman gulps, chokes, and goes into a hem and  haw routine.  Finally the salesman says "Not as such".

The customer then asks the salesman to let him know the British labor content of the car.  The salesman says "A British man held the showroom door open when the car was brought in".

U.S. labor input into "Made in China" items is more accurately described by this satire, than by the fantasy of the "Economic Letter" from Federal Reserve Bank of San Francisco.

See also my posts of April 21 and 23, and May 13, 2011, for further analysis of fantasy in official discussions of our economic problems. I will gladly provide links. 

Are official "trade" figures correct?

When I first began to investigate importation of manufactured goods into the United States, I expected to find a very large figure for China.  The figure I found, from Congressional Research Service reports, and Bureau of the Census, Foreign Trade Division, was a negative balance of trade with China of "only" 267 billion dollars per year.

Looking at all the stores filled 95%  with goods made in China, how could the negative balance of trade with China be only 267 billion dollars per year?  In the typical American home, you can hardly find a Made in USA item.  There is a preponderance of items made in China, accompanied by items made in many other countries.

I believe that the actual figures for China, and for the other countries that do our manufacturing for us, are much larger.  I suspect that U.S. manufacturers with factories in China and other foreign countries bring major amounts of goods in privately, so these goods do not show up in compilations of import and export trade.  

Hide the facts by dilution!

Consider a polluter who releases 100 lbs of pollutant X into the Y river every day.  The polluter tries to hide the situation by diluting pollutant X with a lot of water, before releasing the mixture into the river.  But fundamentally the polluter is still releasing 100 lbs of pollutant X every day. 

Similarly, the Federal Reserve Bank of San Francisco is diluting the actual cost of imported Chinese goods with inflated estimates of U.S. handling costs, and irrelevant domestic services costs.  But Americans still have to pay that actual cost of imported goods.

For the 2.7% figure to be correct, personal consumer spending on manufactured goods, excluding cars and trucks, would have to be tens of thousands of dollars per year for each and every man, woman, and child in America.  This level of consumer spending is obviously impossible and therefore the 2.7% figure is also impossible.

America afflicted by Alzheimer's

Articles are coming out now showing that new products such as "electronic book" devices, which can store texts of up to one thousand books, cannot be made in America because we have lost our expertise and capability in the related technologies.  Here we have a huge disaster and huge tragedy for America, all coming from the insane idea of transferring our manufacturing jobs to "low cost" countries.  One of the very high costs of so-called "low cost" manufacturing regions is an America with Alzheimer's!  We have forgotten how to do things!

But leave that issue aside for a moment, and ask why simple items such as a set of screwdrivers, or a can of asparagus, are made in China.  Why are simple light fixtures for homes of ordinary working men and women  made in China?

These items can be made in America today.  Let's do it!

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